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Diamond: Rivals Lowballed Libor

Robert Diamond, who quit this week as chief executive officer of Barclays Plc, sought to blame other banks for misleading markets about their ability to borrow and regulators for turning a blind eye.

Ordered to testify to British lawmakers after Barclays agreed to pay a record 290-million-pound ($455 million) fine for rigging the London interbank offered rate, Diamond said yesterday he was “disappointed” regulators failed to act on repeated warnings from Barclays that competitors had lowballed their submissions. Legislators challenged him on why he took so long to uncover his own firm’s attempts to manipulate the rate.

“This isn’t just Barclays,” Diamond, 60, told lawmakers at a three-hour hearing of Parliament’s Treasury Select Committee. “Throughout 2007 and 2008, no institution of the 16 banks reporting three-month dollar Libor was at the higher end more consistently than Barclays. Barclays was getting questions about why it was always high and we were saying, ‘We are high because we were reporting at where we were borrowing money.”’

Diamond’s comments underscore concern that Libor, the benchmark for more than $360 trillion of global securities, has stopped being an accurate reflection of banks’ borrowing costs. Last week, regulators found Barclays had tried to manipulate the benchmark for profit and to mask its difficulty borrowing money during the credit crisis.

The scandal has already cost the jobs of Barclays Chairman Marcus Agius, 65, and Chief Operating Officer Jerry Del Missier, 50. At least 12 more banks, ranging from Citigroup Inc. to UBS AG, are still being probed by regulators.

“I’m asking why people at Barclays noticed other people doing this, but were unable for whatever reason to recognize what was going on internally,” Scottish National Party lawmaker Stewart Hosie said. There is “a huge amount of unhappiness both in Parliament and in the general public.”

Libor is calculated by a survey of banks’ daily estimates of how much it would cost them to borrow from one another for different time frames and in different currencies. Because submissions aren’t based on real trades, the potential exists for the benchmark to be manipulated by traders seeking to profit from where the rate is set.

Diamond apologized for the rigging, blaming a group of 14 traders out of 2,000, and said the bank had failed in taking so long to uncover their actions. He said he didn’t know about their activities until a week before regulators published their findings, including e-mails between Barclays traders.

‘Physically Ill’

“When I read the e-mails from those traders, I got physically ill,” he told lawmakers.

Andrea Leadsom, a Conservative member of the committee and a former Barclays banker herself, questioned why compliance officers hadn’t been aware of these exchanges, which took place over a period of years.

“I want to focus on the criminality,” she said. “Not the issues of the financial crisis but the actual criminal behavior. Clearly there was a significant amount of collusion going on.”

Trading-desk supervisors failed to alert their bosses, Diamond said. “In cases where that happened, they were not doing their job and that will be dealt with,” he said. Some will be subject to follow-up criminal probes, he said. “Clearly there was behavior that was reprehensible.”

The fact that “some of these things only became clear to Bob” recently “struck me as odd,” said Michael Trippitt, an analysts at Oriel Securities Ltd. in London.

Barclays shares rose 0.3 percent to 166.45 pence at 9:07 a.m. in London trading today. They plunged 16 percent on June 28, the day after the bank’s settlement with regulators was announced. The stock is down 5.5 percent this year, making Barclays the worst performer in the six-member FTSE 350 banks index.

Moody’s Investors Service today threatened to cut Barclay’s A2 credit rating, citing increased uncertainty for the business given the departure of its three top executives. The ratings company cut its outlook to negative from stable, according to a statement today.

The FSA has “a number of investigations concerning Libor” beyond Barclays’s case, its acting head of enforcement, Tracey McDermott, said on July 2.

The FSA’s biggest challenge is that financial services “is no longer an industry that society respects and has confidence in,” McDermott said. “Last week’s penalty should have dispelled” any doubt of that, she said.

Nationalization Threat

Barclays spoke to the Bank of England, the U.K. Financial Services Authority, the Federal Reserve Bank of New York and the British Bankers’ Association 33 times in 2007 and 2008, the lender said in an earlier statement to lawmakers.

In those conversations it “consistently” raised concerns that its competitors were low-balling the rate, the bank said. Barclays’s three-month dollar Libor submissions were in the top quartile 89 percent of times from Sept. 1, 2007 to Dec. 31, 2008, the bank said in the statement.

“A number of the firms who were posting had emergency loans, were nationalized or were having trouble funding and yet we were posting the highest level,” Diamond said yesterday. “We would question whether some of those other institutions could actually get funds at the levels they’re posting.”

Barclays also released notes the bank said were written by Diamond following an Oct. 29, 2008 phone conversation he had with Paul Tucker, now deputy governor of the Bank of England.

Tucker called Diamond to inform the banker that “senior” Whitehall officials had asked why Barclays’ Libor submissions were always at the “top end.” Tucker told Diamond that Barclays’s submissions didn’t always need to be as high as they had been recently, according to Diamond’s note.

Diamond said yesterday he asked Tucker to tell the officials that not all banks were providing quotes that represented the true level at which they could borrow money. He said he was also concerned the lender could have been nationalized if it showed signs of difficulties in obtaining funding.

“If Whitehall then was told Barclays was at the highest in Libor, they might say to themselves, ‘my goodness, they can’t fund; we need to nationalize them,’ as they had nationalized other British banks,” he said. Whitehall is the London street where most British government departments are based.

The conversation between Diamond and Tucker was passed on to Del Missier, who misinterpreted it as government permission to submit lower quotes, according to Barclays.

Diamond said he didn’t believe government officials wanted Barclays to “fiddle” with its Libor submissions. Barclays had no difficulty funding, he said.

Tucker yesterday made a request to appear before Parliament “as soon as possible” to give evidence on Libor, according to a statement released by the Bank of England.

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